Posted on 10/30/2010 12:34:31 PM PDT by FromLori
"In France the last few weeks has been enough protest. Since demonstrating in the street have brought us nothing we understand that the real power lies in the hands of international banks and corporations. All citizens of the country resolve your accounts in cash.
(Excerpt) Read more at businessinsider.com ...
And, that will solve their problems? I don’t think so. Is George Soros behind this rioting in France? He can just sit back and pick up the spoils.
I wonder if this will spread to the US
The EU, led by the french, are little children. When daddy and mommy say there isn’t enough money to go to MacDonald’s, they throw a tantrum.
Wittle babies, one and all.
So could the EU just print Euros as necessary for the banks to hand out, so they remain solvent, and the people just imposed a whopping inflation tax on themselves?
After the election, I think almost anything is possible. I don’t think I ever felt this way before, but the current establishment is going to be desperate. If there are numerous Congressional hearings, a lot of s**t is going to hit the fan. It may be cataclysmic . . . but I really don’t care. We may have to make a lot of sacrifices, but I feel in the long run we will be stronger for it. This nation can no longer tolerate the decent into the hell Obama is leading us into.
You mean like geithner/fed is doing here?
The Fed’s ‘tax on the consumer’
http://money.cnn.com/2010/10/28/news/economy/quantitative_easing_consumer_impact/index.htm?hpt=Sbin
I don’t know.
Ok, I understand these people are protesting about the retirement age being raised to 62, but who is it that is taking their money? Wouldn't that be the socialist French government?
They should be going after them and their taxing authorities.
JUST LIKE WE SHOULD BE DOING HERE IN THE U.S.!!!
I don't either. Historically, it seems that bank runs have only caused problems when the banks couldn't meet cash withdrawal demands.
I do know that the cause of inflation is the creation of fiat money, and inflation is a tax on those who hold savings.
Also supply and demand would cause excessive cash in the marketplace to drive up prices of goods and services, so what are these people gonna do, move their money from savings to mattresses?
I have been worried about this vulnerability for a while now. The western economies only have fractional paper money compared to their virtual currency. In the US, for example, only 5% of daily retail is backed by paper money, and the vast majority of it are $1 bills.
This means that almost *any* paper run in the US would empty the banks of paper money in an hour. And because the US has only two printing offices, there is no way to get paper currency back into the system with any speed.
Nor can it go to higher denominations, because there just aren’t enough $50 and $100 bills to make change for even a $500 bill.
The immediate response would be that everyone had to move to electronic money. But retailers that *had* to have paper money would demand it. Importantly, paper money is legal tender, but electronic money is not. The man on the street would hoard paper money.
This could cause the dollar to split, with one value for electronic money, and another for paper money. It actually invokes “the iron law of currency”, in which, when there are two competing currencies of unequal value, people will want to spend the currency of lesser value and save the currency of greater value.
Sometimes described as “Bad money pushes out good.”
I think it wise to have some cash on hand just in case I noticed this is being passed around now on many sites as I went tracing the article back trying to see where it originated.
I’ll add that right now, having “mattress money” is an extremely good idea. Money in a bank could be kept from you by a government bank holiday, or because of a recent change in the rules, by the bank itself, if it thought a bank run was in progress. It could just refuse to honor your withdrawl. Or checks. Or any other instrument.
So the only way to save your bacon is to have cash in such a way that *nobody* but you controls it. Fortunately, the risk while doing this is low.
If there is deflation, no problem. If there is inflation, you have it on hand and can quickly spend it.
And if there is a paper run, which causes a de facto split in the currency, it is likely that virtual money will hyper-inflate, while at the same time, paper money and coin will become extremely valuable.
Practically speaking, because our retail economy only has a 5% backing, our paper money and coins are *already* worth 20 times their face value. That is, they are 95% deflated. If there is a paper run, this value is assumed immediately.
And because there will be huge demand for paper and coins, that deflation will get even more severe.
In Weimar Germany, when the German Papiermark currency went into hyperinflation, some people still had US dollars, whose value was deflated so much so that a new automobile might cost billions of Papiermark, or only $50, if you had dollars.
Everybody wanted dollars, and nobody wanted Papiermark.
The only difference in the case would be that virtual money was worthless, and paper money is priceless.
ping
Thanks so much for that explanation.
Thank you both.
Everyone should withdraw their money from the banks?
I’m sure that would make pickpockets, muggers and other thieves happy!
One other thing. While it is hard for an economy to extricate itself from such a crisis, there is a legal means to mitigate the problem at the local level. It was used during the Great Depression, and there are still a few cases of it being used today.
It is called “scrip”. Scrip is sometimes called an alternative or complementary currency, but it is not legal tender. Use of scrip, both by retailers and consumers is entirely voluntary. But at the local level, it can keep both government and local markets functioning, at a time when the dollar has become either unstable or unavailable.
It provides a very stable, controlled currency, in a situation of fixed prices. Its rules are set by its issuer, who is someone that is trusted enough for “buy in” from retailers and consumers. The more people using a given scrip, the more effective it is as an alternative.
Scrip can only be used for authorized transactions as well, so there is little or no black market value for it. And modern versions of scrip sometimes lose a few percent of value each month, to prevent hoarding.
A scrip issue begins by people exchanging their unstable dollars for stable scrip, often at a discount, so the scrip is more valuable than the equivalent amount of dollars. By concentrating dollars with the issuer, they can get better value in purchasing goods produced outside the scrip area, such as pharmaceuticals.
Locally produced goods get the best value for scrip, and taxes can be withdrawn automatically. And if there are any problems, scrip can be redeemed by the issuer in short notice.
A modern incarnation of scrip could even be printed on plain paper by a home computer. This is because its reverse would have an encrypted Datamatrix bar code, a public domain bar code, that can be read with a hand scanner, and can contain a great deal of data.
This means that you could print out your own notes, after having paid dollars for them, and each bar coded bill would be assigned to you as an individual. Only you could spend them, by giving them to a retailer who would scan them, and then you would enter a PIN number to verify your identity. They would then change their assignment to him and become his scrip.
If they were lost or destroyed, no problem. Just print out more.
Likely there would even be a variable bill just for change, taxes, and other fractional use. Its value would vary up or down, when scanned.
Locally, the use of scrip helps to stabilize the dollar, so its use benefits everyone.
Could you explain your assertion that paper dollars are legal tender and demand deposits (checking accounts) are not? Never heard that before. A link to a cite or something would be good.
The nice thing about legal tender laws, if you try to pay a debt and they refuse, then that debt is essentially extinguished.
Me: “Here is the $500 I owe you.”
Them: “No, we don’t take cash
Me: “OK, thanks”
According to the US Treasury website:
The Coinage Act of 1965, specifically Section 31 U.S.C. 5103, entitled “Legal tender,” which states: “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.”
“This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor.”
The difference is that demand deposits, credit and debit cards are instruments of their respective issuers, therefore they can be refused as a payment for debts, etc. The government requires that many such accounts be insured by the FDIC, but this is insurance, not recognition that they are legal tender.
In short, if your money is on a computer, it is not fully yours, and the government, the financial institution, or retailers, may refuse to honor it. And likely right at the worst possible moment.
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